Economics of Sports

Mega sporting events like Olympics and FIFA World Cup have proved to be big money grosser for the host countries and have led to significant impact in terms of job creation, boost to consumption, infrastructure development which has a rub-off effect on a number of industries such as steel, cement etc. It is no surprise then that economists and researchers are now increasingly looking to sports economics to understand and measure its economic impact.

The ever-growing sports industry is one of the largest and fastest growing industries in the world. The business of sports is considered as the 6th biggest industry in the European Union, 11th in the United States and 22nd in the world. The size of the industry is estimated to be around $250 billion. It is far more than twice the size of the US auto industry and seven times the size of the movie industry. In the US, professional sports are multi-billion dollar businesses worldwide. It is growing rapidly where some of the largest international sporting events are taking place on a regular basis. According to Hong Kong Convention & Exhibition Centre, the business opportunities will grow phenomenally from the upcoming sports events. 

Though many people are sports fans, they may not understand the business aspect of sports. In fact, economic factors affect the behavior of participants in sport markets, including owners, managers, players and the media—just as they affect the behavior of individuals in other markets. Like any other industry, basic economic principles help make sense of many issues in the world of sports.

According to a study covering the impact of the FIFA World Cup, the infrastructure and service sectors in the host country receive thrust from the Government and its rub-off effect is felt on other sectors like hospitality, transport services, textile and even the healthcare sectors etc. Besides, selling telecast rights, revenue from tickets, sale of beverages enrich the state exchequer. All these provide a big boost to the host nation’s economy. Several researchers in the past have suggested that mega events have a multiplier effect on the local economy. Supporters of mega-sporting events such as the World Cup and Olympics claim that as these events require huge infrastructure they act as a stimulant to construction activities and employment in that particular region. They also give a boost to tourism which brings foreign currency in the country concerned.

Beyond Cricket

Indeed, IPL takes the Indian cricket or perhaps the world cricket to a new height not just in terms of expanding the reach and appeal to a wider audiences in India and abroad but adding economic aspect to a game that is still confined to 10 playing Test nations and just 16 odd ODI playing nations in contrast to other sports like football, tennis, and basketball which have got universal appeal.

However, it is not cricket alone which is seeing commercialization of the game taking place at the scale and level that is unprecedented. In fact, mega sporting events from Olympics to Football World Cup, Super Bowl to Wimbledon are now increasingly emerging as the new battlefield for companies (which want to outdo each other in the race to grab eyeballs and showcase their products). While winners take their share of prize and cash rewards, sponsors and other stakeholders rake in big moolah in the process, in in-stadium ticket sales, media and broadcast rights etc. 

The multiplier effect becomes clearly visible. The rub-off effect on different sectors like tourism, hospitality, infrastructure, construction, consumer goods, and electronic gadgets leads to jump in demand and also job creation. This, in turn, acts as a major stimulant to the host nation’s economy.

Indeed, sports is one of the few industries where huge amount of historical data is easily available for conducting research. Fittingly, sports economics has found its own niche today and is an established discipline in its own right. ‘Sports economics has developed from an unconnected set of research questions pursued by economists working in labor economics, urban economics, industrial organization, and other areas to a clearly identifiable field of study in the discipline of economics. 

Course Curriculum

No doubt, the sports economics is now increasingly finding its way into the classrooms. A growing number of B-Schools and other institutions of higher studies are increasingly incorporating sports economics in their course curriculum to make students understand the principles of economics in a much more interesting way.

For example, the University of Wisconsin-Parkside in Wisconsin, USA, runs a sixweek course on Sports Economics Pedagogy. Topics covered in this course include the economics of player salaries, ticket prices, ticket scalping, pricing in the memorabilia market, and public financing of stadiums.12 Others like the Massachusetts-based Isenberg School of Management13 at the University of Massachusetts offers PhD program in Sport Management that covers some of the Sport Management sub-disciplines, including Sport Organizational Behavior, Sport Strategic Management, Sport Marketing, and Sports Economics and Sport Finance. Even the prestigious New York University at its School of Continuing and Professional Studies runs a course in Sports Economics that covers topics such as ‘the economic impact of sports teams and facilities; financing mechanisms for sports facilities; labor relations; and salary determination in professional team sports. 

According to Prof. William S. Kern of Western Michigan University, ‘The use of economic principles to help students understand the economic issues in sports provides evidence to students that learning economics can be both useful and fun.’ It is also becoming clear that b-school students can make a career out of sports profession who could not realize the dream of becoming an athlete or excel in the field of sports.

A Multi-billion Dollar Industry

Undeniably, sports is no longer just about sportspersons and their individual glories. Rather it has now emerged as a multibillion dollar industry eliciting growing interest and participation from business enterprises – from advertisers to broadcasters, merchandisers to shoe manufacturers – in a big way. For instance, in the US alone ‘the size of the sports industry based on aggregate demand and aggregate supply range from $44 to $73 billion in 2005.’16 The US also leads in other segments of the sports industry which include sports equipment industry, apparel, footwear etc. 

According to Datamonitor’s Sports Equipment: Global Industry Guide, the global sports equipment market grew by 3.3% in 2007 to reach a value of $67.9 billion. Of this, as the report says, the sale of golf equipment alone accounted for about 22% of the overall market’s value while among the regions, America emerged as the leading sports equipment market, accounting for a lion’s chunk of 43%. The report forecasts the market size to jump 17.9% and to reach $80.1 billion by 2012.

Popular sports like football basketball, tennis, racing, baseball etc. have emerged as the hot favorites of corporates. Given the growing involvement of corporates, sports has grown into a multi-billion dollar business. “Over the past 20 or 30 years, the major trend in sports has been the tremendous growth in revenues, primed by televised broadcasting of games. This innovation led first to increased advertising sales, then to sponsorships, and then to stadium naming rights.”19 Corporates’ involvement, however, does not end here. Product endorsement by sportspersons, brand ambassadorship etc. have become now the big revenue stream for sportspersons and companies.

Sky is the limit

While sports have grown into a full-fledged, multi-billion dollar industry in its own right, a section of experts caution about the growing influence of businesses in the sports arena. First and foremost, sports economics is mostly about team sports and hence ignores non-team and individual sports. Further, it is leading to over-commercialization of sports which is certainly not desirable. 

Besides, it is leading to greater inequality in the society with sportspersons from lucrative sports like cricket and football getting superrich while those from the not-so-popular sports like hockey getting the raw deal. As a consequence of this, as many experts feel, this might be encouraging, explicitly or implicitly, prospective players to switch to more lucrative sports like football and cricket. 

Sportonomics in India 

Already in case of India, we have seen that how the hockey, the country’s national sport, has suffered since long while cricket prospered, as the former has been facing apathy of not only the public sector but also the private sector. This has proved to be quite discouraging for the game and the prospective players many of whom prefer to switch to cricket, the most lucrative game in India. And it is not the Hockey which is suffering. 

In fact, other games like chess, badminton, tennis, judo, archery, swimming, have suffered at least as far as India is concerned for the lack of corporate sponsorship and interest. The fact that India has not produced a single world-class athlete till date tells a sorry tale about the suffering of sports other than cricket, due to lack of interest on part of the government and the private sector.

However, notwithstanding such concerns, there are certain good aspects to it which to a great extent negate those concerns. The entry of corporates have begun to attract a lot of youngsters who are now more confident about making a career out of sports, which was however not the case, earlier especially in the developing world. Also, the infrastructure has got a major boost due to the growing interest and investment from the corporate sector. Also, this is bringing in discipline and reducing government load. Finally, like it or not, the sports economics is here to stay. 

N Janardhan Rao, Lead Economist.